Looking for some penetrating insight on E-business – how it’s affecting Canadian corporations, how they’re building their future strategies around it, how it’s transforming operations and customer relationships, and what it takes for a company to capitalize on it, instead of becoming a victim of it?
You’ll find a wealth of such insight in the following highlights, taken from the CIO Canada Roundtable held recently in Toronto.
ATKINS: How are E-commerce technologies and processes changing the way that you conduct business?
REINER: The advent of electronic business places a tremendous pressure on companies to transcend the traditional structure of departments and business units – to integrate many of those functions – because the demands of E-business have changed the marketplace to such an extent that traditional structures aren’t as effective as they need to be anymore. A critical success factor in E-business projects is the ability of the entire company to get behind the project, as opposed to it being driven by a particular department or senior individual. At FSC we assist companies in making the transition to E-business. And we’ve reached the point where early in the process, if a company doesn’t seem to be a unified whole, prepared to build structures to back E-business processes, we may suggest that possibly the time isn’t right for the project.
DIDO: E-commerce is having a major impact on our business. In fact in the last ten days the Royal Bank has completely reorganized and made a business unit out of electronic commerce in order to deliver all the efficiencies and value that a customer is looking for from a financial institution. We are trying to deal with a lot of perceived needs, perceived value, things that aren’t set in concrete. For any of the big six banks, this is a major change, because we deal in business cases and profits and 100 per cent certainty when we deliver a product. That does not happen in electronic commerce. It requires different competencies, different skill sets, different business models – and we haven’t got all the answers. For a financial institution, it’s a scary place to be.
ALLARD: In the financial services industry our products are all information based, and when you look at every aspect of our operations, there is potential to do things differently in an electronic world. There is no question that E-commerce is going to have major impacts on our traditional distribution channels. We have to sell our customers value and choice – choice in products, choice in access to our products – as well as convenience, and people are finding it very convenient to deal over the Internet. I believe our business will change at the same pace that consumers like using electronic services.
MOUGAYAR: Changing at the pace of customers is, I think, a bit too conservative, because your customers will change – already are changing – as a result of other forces that you may not be in control of. If you decide to change after your customers’ electronic needs undergo change, you may not be able to do it fast enough. So I think that you want to be ahead of them. You can afford to be a bit more aggressive in delivering and anticipating consumer needs because they will suck it up. It’s interesting to note that in the financial services sector, the top ten sites on the consumer side in North America are not banks. A future customer is an electronic customer.
ATKINS: How are E-commerce technologies and processes changing the way that you are likely to conduct business at your enterprise in the future as these things creep into our lives?
REID: By 2005 we see many Xerox customers being in a small office, home office environment. They will be telecommuting and will have an even greater need to share the knowledge that is around the organization. Documents account for about 80 per cent of the work that any of us do on a day to day basis, whether we are creating them, reading them, or in a meeting discussing them. So having access to them is critical, and that’s where we are focused. Our customers are going to need to be able to get to information faster than they have ever had to get to it before. We are going to need very sophisticated browsers to support that environment and our customers are going to be looking to us to provide instant answers. The future is going to be 7 by 24 service, with anywhere, any time delivery of information.
THOMAS: Looking to the future, GE Capital would like to offer one-stop shopping for E-commerce, whereas today we have varied solutions. We want to have an integrated solution so that no matter where our customers are they can transact business in the mode of their choice and we can seamlessly integrate that into our back end. So that is really the future – operating in the mode that the customer wants versus what makes sense for us here.
CAMPBELL: CIBC is experiencing probably the biggest cultural shift it has ever gone through in trying to create and equip a sales culture domestically and internationally. These people don’t sit in the bank anymore and wait for business to come in. We now have a remote sales force that has to aggressively go after customers and compete with other independent financial planners around the world. They could be a continent away, working as referral agents in Montevideo and placing business in Zurich. How do you connect them to the information they need in multi languages, give them the ability to query accounts, set up new accounts, and give them the tools to effectively support their clients? And that is just the sales force. Beyond that, clients will become more demanding in getting access to information 7 by 24. We’ve made a good start addressing that with PC banking but we’ve only scratched the surface.
ALLARD: What will continue to affect us significantly is the expectations of the customer. With E-commerce, we are building the expectation that everything has got to be instantaneous, but a good part of our traditional operations don’t operate that way. In the past the expectations were created by our traditional competitors. This is no longer true. If people are getting instantaneous service from Xerox, they will expect it from us. That means a major transition in the way we do business internally. It means we have to have a network that is much more encompassing than we have today. We have a number of partners involved, such as doctors and people who are not necessarily linked to Sun Life. Now it means that we have to establish those links. There is no question that the barriers of entry to some of our traditional business are virtually eliminated by electronic commerce. Some new competitors are small and very agile, and they’ll have an impact on the way we do business. So we have to start thinking differently about the way that we approach the market.
DIDO: E-commerce is going to bring about a very important change in relationships internally with the rest of your organization. I come from a business unit and in the next five to ten years my relationship with my technology unit has to change dramatically, because I want to be able to do things a lot faster. They have got to become part of me or I have to become part of them. It is a melding. So when I am building my strategic plans, when I am putting my view of what future requirements are – three months out, six months out, two years out – they have to be there as part of that so we can respond together. We’re no longer working with 18-month lead times. This is months lead time, weeks lead time.
ATKINS: What insourcing and outsourcing opportunities are you considering as a result of the proliferation of E-commerce technologies?
CAMPBELL: I see alliances, partnerships and outsourcing only expanding in the foreseeable future. You can’t and shouldn’t do it all yourself. Gone are the days when you have the attitude that you can do better than what is already built. It’s now a question of how you strategically leverage external resources. The job of the CIO is becoming more of a general contractor where it’s not all just home-built, it’s who you bring in at what point in time – you take advantage of the skill set and then show them the door. That’s not a gracious way of putting it, but how do you say ‘Thank you very much, I have understood your expertise and we no longer need that skill set.’? Because you can’t afford to hire all the skill sets you need forever and have them hanging around.
THOMAS: When we started web development at GE Capital, we partnered with an outside company and had some very interesting challenges getting the product out the door. We got it out quickly but we had a lot of concerns with the partner we chose, and it took us awhile to get out of that relationship. When we brought the project back in-house it slowed down our speed to deliver, but it brought us closer to the customer and we were able to change things quickly because we knew what the customer wanted and we knew the market. The down side was that we were going a little slower than we wanted to, so now there is increasing pressure to look at outsourcing again. But this time we are going to be very careful who we pick, because the partner that you choose really determines your success.
REINER: As a supplier of outsourcing services, I think there are a couple of things I can say that transcend my bias. The first has to do with knowledge transfer. There is no better opportunity for the internal managers and staff of the project to acquire the necessary competencies than to work side by side with folks who have been through the entire process a number of times. Second, a comment about selecting a partner – ignore everything they say and look at what they have accomplished. Ideally you will choose a partner who has either done projects much like yours or who has done something analogous in another industry and who has had the experience of seeing things reach the brink of disaster and recovering from it. And don’t believe anyone who says he can walk you through this and there will never be a moment of trial or tribulation – there will be, this is new stuff.
ATKINS: What impact will E-commerce have on the way that you interact with your customers?
REID: I guess the shortest answer is that we’ll interact with customers the way they want to. We want to customize our approach all the way from the single individual who is a Xerox customer right up to large organizations. And in large organizations that are our major accounts, we want to be able to customize down to a specific user within that particular account. When a customer calls in, we need to know how he or she wants that interaction with us. We will deploy whatever the customer wants.
MOUGAYAR: I have a new rule: the 80/20 rule. For any organization that wants to be really competitive beyond the year 2000, 20 per cent of their revenues have to be coming in online or 80 per cent of their customers have to be influenced via online channels, methods or interactions. Many of today’s leading companies have already reached or exceeded those numbers. The implication of this is that customer relationship management now becomes electronic customer relationship management. And when everything is equal – when everybody has the same capability for reaching customers – it’s the customer’s online experience that will count. So I see a lot of activities in electronic customer relationship management – whether they are web-based call centres or other ways to provide the best experience before, during, and after the sale.
DIDO: We are now looking at moving to where we can customize products to a segment of one. That is, the bank can give you the kind of products and services that you want, when you want them – perhaps even products that you haven’t thought of – using data mining techniques and all sorts of things. That’s very different from the mass customization approach we use today, which is still a very static and inflexible business model. The account manager and the branch teller will move much more into knowledge worker functions, supporting the basic information that you have already gleaned from the Internet or from our electronic support systems. We will probably try to establish very quickly something called corporate memory. No matter where you deal with us in the world, we will know where you are, what kind of transaction you are conducting, and how we can better service you and complete that transaction. There is going to be a fine line where service and value meet, versus the invasion of your privacy or your space. That is going to be an acquired marketing skill that we are going to have to deal with over time.
CAMPBELL: I don’t see us creating six million one-to-one relationships. There are different segments of customers. Some we call ‘high help’ – those who say “We have money; we trust you; we want you to invest it for us; go away and do it.” At the other end of the spectrum are the ‘low help’ – the ones who know what they want, want to do it cost effectively, and are really self-serve. You’ve got to look at the segments and provide the best cost-effective service you can along the continuum. So in the financial industry we are trying to figure out where to deploy our resources to offer the best products and recognize that we’re serving different needs.
THOMAS: Our E-commerce efforts are focused primarily on the top 20 per cent of our customers, who are bringing in 80 per cent of the revenue. We’ve spent a lot of time personalizing the web experience, thinking of the customer who is signing on, providing custom catalogues and custom pricing. The next step is data mining. We want to understand the customer more and provide that data to the sales team so they can cross-sell and up-sell. You’ve got the knowledge; do something with it. You also have to give the customer something nice because you’ve brought them to ‘the store’. One way we can provide value is by taking the data that we have on our customers’ purchasing habits and pushing it back to them, so they can come online and say, “What did department ABC order last month? Great, it’s done for me! I don’t have to key it in.” That’s value added right away.
REINER: We are rapidly reaching the stage where customization of the product or service – where “have it your way, double pickles, no cheese” – is the base line. That is the starting point and opportunities exist from there on out. Not being able to do that may be a deal breaker, but doing it won’t in itself be a deal maker. One way to capitalize on an opportunity beyond that level is to be able to anticipate the moment of need, the moment when there is a requirement for something new – to anticipate the evolution of your customers through their lives and through the buying cycles they will go through. There are other opportunities beyond that frontier too. You have to be able to do something for the customer that he or she didn’t know could be done. You have to add some value to the transaction not just by letting the customer call the shots, but by doing something for the customer that it is a positive boon, a surprise, a wonderful gift.
ATKINS: All of you have a one year financial planning cycle, but in the area of E-commerce you have new needs that pop up about every web year, every 90 days. How do you manage that within your enterprise?
ALLARD: The old way of planning doesn’t work when it comes to the Internet. When you try to apply the old patterns – like having some standards within the organization and across the various business units – you can’t cope, because you can’t establish standards fast enough to satisfy the needs of the business unit. So you find that you have to do things very differently. From a cost and a management point of view, we need to modify our approach. We recognize that it is an evolving world and we have to take more risk than we did before. Especially when you are trying to put a business case together, you have to make very rough estimates about the usage and the type of volumes you are going to get, which is very difficult to predict.
MOUGAYAR: The old paradigm was plan, do; now, on the Internet, it is do, plan. You are never going to have 100 per cent of the answers. Amazon.com never had 100 per cent of the answers. They had 40 or 50 per cent of the answers; the rest was gut feeling, and making it happen, and changing it as they went along. You have to trust in the fact that this is small right now and this is when to make the mistakes. The cost of entry is going to keep increasing. That’s why a lot of companies are very aggressive and spending so much on the Internet, because they know the cost of customer acquisition today is low compared to what it is going to be two years from now. Acquiring experience early on is invaluable; later it’s going to cost you a lot more.
REID: You have to look at E-commerce on a strategic basis, as opposed to a tactical one. There is going to be an increase in your costs initially as you build things in. As you force people through a culture change everything tends to go downhill fairly fast. You go through what we call the valley of despair, where change comes along and everything sort of goes away. You do come back up and you end up performing at a much better level, but in that valley you are spending a lot more money. So in the short term it is going to cost us more and we need to get smarter in terms of how we enable our people, who are face to face with the customer, to accept these changes.
DIDO: The thing that’s given us the most success in getting business plans through is that we’ve changed our relationship with our suppliers. I don’t deal in a supplier/vendor world anymore, I deal in business partners or alliances. When I come up with a project that has some implications for Sun Microsystems or Bell Canada, I look for alliances. I want to share the risk, and in return I’ll share the revenues. I’ll contribute market research and customers; you contribute technology and whatever else you’re bringing to the game. When we give these kinds of presentations to the operating committee of the bank, and I have the president of a major technology vendor standing beside me, it has a significant effect. It changes the perception of risk. That’s the kind of modelling we’ve got to do to really move these kinds of business cases ahead.
ATKINS: I’d like to explore the challenges that you are having getting the whole company behind these cross-chimney projects. How do you get everybody in the boat?
THOMAS: We are very fortunate in that we have top down management support. However there is a middle layer that this hasn’t trickled down to yet. We are focusing on the outside customer all the time, and we forget that we’ve got internal customers that really need to be bought into this. I think there are three things needed in bridging that gap. First, we need to create much more awareness in the organization that we’ve got a successful E-commerce initiative. Second, we’ve got to get our own people trained first – before the customer – so that they go out and spread the gospel. And third, there has got to be some incentives for sales teams to encourage their customers to participate.
REID: We’re all familiar with projects where we raise the awareness and build excitement in the teams working on these projects and then we deliver something to some poor individual who doesn’t have that awareness or excitement. And all that person sees is that we are changing his or her life drastically without much explanation. So you need to pull people in as early as you can, and share that knowledge with them. You need to get them excited if they are going to be in the boat.
ATKINS: If you could isolate one thing that you think is your greatest challenge with respect to E-commerce – whether it be organizational, technological, process-driven, or content-driven – what would it be?
REINER: There are a number of areas in which the security infrastructure around electronic commerce on the Internet today is flimsy or nonexistent. Sure, browsers can do key exchange and bring up 40-bit or 128-bit encryption, but there isn’t any infrastructure around that. There isn’t a key-management infrastructure, there isn’t a certificate infrastructure, there isn’t a security policy infrastructure – and that is really the key one, although I think it’s the least appreciated. Look at your browser. It has become much more than an instrument that shows you pretty pictures and things to read; it has become a tool for doing things, and it is not yet quite the right tool. Embedded in it, in ways that you can’t even check much less alter, are elements of the security policy that determines how safe you are. Policy decisions like that shouldn’t be buried; they should be put in the hands of those who are affected.
MOUGAYAR: I always go back to the issue of speed: speed of change, both on the technology implementation side and on the decision-making side. What will make the difference for companies is having the courage to make fast decisions, even though they are not 100 per cent decisions.
DIDO: I agree with Richard that security is number one. The number two issue is understanding customer value propositions. The challenge is going to be delivering value – value in the eye of the customer as opposed to what value I would love him to have. The customer will be more knowledgeable and will have a variety of choices. He’s going to be a lot more difficult to satisfy because he is going to see a lot of things that he never saw before. The question is, will I be able to react and will I be able to be his gateway to providing future value? That is going to be a monumental job.
David Carey is a veteran journalist specializing in information technology and IT management. Based in Toronto, he is managing editor of CIO Canada.